Still Time to Buy U.S. Steel Stock

United States Steel Corporation (X) shares have rocketed higher in the past month, gaining 50% in a vertical impulse underpinned by steel tariff threats and upcoming infrastructure legislation. The rally broke a seven-year trendline, offering a stiff tailwind that sets the stage for even stronger upside in the coming months. Daily and weekly relative strength oscillators are not pinned to overbought levels, suggesting that sidelined players can open positions near recent highs and not violate conservative risk management strategies.

Strong Congressional resistance to steel tariffs put a floor under major averages on Monday, but the stock held up well because the stage is set for stronger revenue and profits even if President Trump reverses course. However, U.S. Steel's volatility is likely to escalate as the two sides butt heads, testing the resolve of newly minted shareholders. Look for dip buyers to come to the rescue if that happens, keeping a price floor near $40. (See also: Which Stocks Will Win or Lose From Steel, Aluminum Tariffs?)

X Daily Chart (2014 – 2018)

A rounded basing pattern gave way to a 2013 uptrend, lifting the stock in a healthy advance that topped out at $46.55 in September 2014. Choppy sideways action into 2015 completed a head and shoulders topping pattern that broke to the downside in August, generating a steep decline that continued into the January 2016 low at $6.15. That level marked the lowest low since the company began its current public incarnation in 1991.

A recovery wave into July 2016 stalled at the 50% sell-off retracement level, yielding an orderly decline followed by a secondary rally impulse that stalled within five points of the prior high in February 2017. That peak also marked resistance at a logarithmic trendline going back to 2010. The stock failed the breakout attempt and got cut in half in the next three months, reinforcing resistance just above $40.

A slow-motion uptick set into motion in the second half of 2017, accelerating in December in reaction to an early 2018 legislative schedule that now includes infrastructure spending. It reached trendline resistance and the 2017 high in January and reversed course once again, but aggressive buyers emerged just above $30, setting off a powerful impulse that broke long-term resistance about three weeks ago.

The rally completed a round trip into the 2014 high on Feb. 20, generating automatic sell signals, but two factors suggest that the stock will hold near highs and gain additional ground in the coming weeks. First, price action in the past 13 months carved the ragged outline of a handle that may complete a cup and handle breakout above $47. Second, relative strength cycles have not confirmed sell signals due to strong momentum buying pressure. (For more, see: Trump's Steel and Aluminum Tariffs: What You Need to Know.)

X 60-Minute Chart (2017 – 2018)

The stock broke resistance in a vertical wave that covered the distance between $39 and $47 in just eight hours, giving way to a pullback that found support at $43 a few days later. Price action has carved a pennant on a flagpole pattern since that time, with market players focusing their attention on horizontal resistance at $47. A Fibonacci grid stretched across the rally places the breakout at the .382 retracement, establishing a short-term line in the sand.

A decline through the low at $43 would trigger a large supply of stop-losses, favoring continued downside into breakout support near $40, offering a secondary buying opportunity. However, the strongly bullish short-term pattern could easily trigger a breakout in the coming sessions, opening the door to 2010 and 2011 resistance in the low $60s. Meanwhile, the cup and handle pattern projects a measured move target in the mid-$70s. (See also: U.S. Steel Stock at Cusp of Historic Breakout.)

The Bottom Line

U.S. Steel stock completed a 100% round trip into the 2014 high last month and pulled back, but it could add to gains in coming weeks, lifting into the low $60s. (For additional reading, check out: Top 4 Steel Stocks for 2018.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>